Question

According to the efficient market hypothesis: a. High-beta stocks are consistently overpriced. b. Low-beta stocks are consistently overpriced. c. Positive alphas on stocks will quickly disappear. d. Negative-alpha stocks consistently yield low returns for arbitrageurs.

Solution

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Underestimating stock prices in an efficient hypothesis market and overestimating stock prices is not possible. The shares have a normal price, so the yield with shares with a negative alpha cannot be stated with certainty. Stocks that produce abnormal excess return will increase in price to eliminate the positive alpha.

The correct option is cc.

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